I think I'll be renting for awhile, until the bubble bursts. While the monthly payments may be the same for a $180,000 home financed at 5%/30yr as for a $140,000 home at 8% or a $98,000 home at 12%, one has a lot more options with the latter than with the former. If one buys a $180,000 home at a 5% fixed-rate mortgage and property values fall while interest rates rise, one may be pretty well stuck. The $1000/month morgage payment may be affordable, and one might keep the home even as its equity went negative, but one would be quite unable to move. By contrast, if someone gets a $98,000 home at a 12% rate, a drop in interest rates would allow one to reduce the effective cost of one's home, and rising real-estate prices would give the owner more options.
That's precisely what I'm doing. I owned a wonderful 1400-square foot condo down in Raleigh, but I sold it when my job moved up to the Boston area. I could afford to buy something up here, but I just don't see reasonable value offered for one's money. Don't really know how long I'll be up here, and my rent is reasonable enough, so I don't care to pay hundreds of thousands for something that could suddenly end up being worth far less.
I think everyone now is buying on the "greater fool" theory. Prices have gone up so fast for so long that folks have it cemented into their heads that real estate is bound to keep appreciating that way in the future. That's silly. When real estate keeps appreciating faster than wages and prices in general, at some point, it outruns fundamentals (such as rental incomes and the cost of building new structures), and real estate prices collapse.